Microsoft Still Golden, Says Goldman (MSFT, GS)

Goldman Sachs analysts Sarah Friar, Derek Bingham, Stephanie Withers, and Ventsi Stoichev reiterated their Buy rating for Microsoft MSFT following its announcement of its private convertible note offering. Microsoft plans to raise $1.15 bn in private convertible notes (due 3/15/2013) with an option to sell an additional $100 mn. According to Goldman Sachs, "The additional debt is largely immaterial given MSFT’s already substantial cash balance (around $40 bn) and buybacks that typically exceed $1.15 bn per quarter. However, we view the offering as accomplishing several goals: (1) Just like the $6 bn straight bond offering from a year ago it gets the company’s feet wet for further convertible debt; (2) It marginally begins to weight cash back on shore for buyback purposes." MSFT is currently trading at a CY11 P/E of 10.0 relative the software median 17.9 and the S&P500 median 11.3. The price target of $38 implies 50% upside from its current price of $25.29.